G20 countries have been told to get their Covid relief exit plans ready by the group’s regulator, the Financial Stability Board (FSB).
The FSB warned on Tuesday that ending economic measures too soon could present more of a threat to financial stability than leaving them in place for too long.
The regulator said the speedy measures introduced by governments have limited the Covid shock but added that phasing them out will also present risks given continued uncertainties.
Despite the arrival of vaccines, the withdrawal of relief measures is not imminent given the worsening of the pandemic in some countries.
Withdrawals could be based on narrowing the scope of relief measures and gradually making the support less generous.
A “state-contingent” approach rather than a pre-announced timetable could help to minimise long-term financial risks, the FSB said.
“For many support measures, authorities need to take a decision on whether to extend, amend or unwind them,” the FSB said in its report for G20 finance ministers.
“Prematurely withdrawing temporary measures designed to support bank lending could lead to an unintended tightening of bank lending.”
FSB Chair Randal Quarles said in a letter to G20 members that there were signs of an emerging “infection point” as vaccines are rolled out.
“While it is sensible to keep measures that support financial system stability and financing of the real economy in place as long as needed, the factors to be considered in deciding whether to extend, amend and, eventually, end support measures are taking shape,” Quarles said.